Co. Cancels Free Computers Program

Tuesday, December 5th 2000, 12:00 am

By: News On 6

SAN FRANCISCO (AP) â€” ZapMe! Corp., a company that gave schools free computers and Internet access in exchange for the right to display online advertisements, has told 2,300 schools nationwide that they must either give back the equipment, or start paying for it.

The company is now focused on providing high-speed Internet access to corporate clients.

In a letter dated Nov. 10, ZapMe! told schools it will no longer subsidize school computer labs through advertising revenue. If the schools want to keep their computers, they'll have to lease or buy them.

ZapMe! Chairman and Chief Executive Officer Lance Mortenson blamed pressure from consumer groups, which criticized ZapMe!'s use of advertising in schools.

Mortenson said the criticism is the number one reason the company has abandoned the business plan. ``It just became an impossible model. People didn't want their brands associated with something Ralph Nader was going to attack,'' Mortenson said.

He also blamed the move on the perception that advertising on the Internet is not a viable source of revenue. Israel's Gilat Satellite Networks, which bought a 51 percent share in ZapMe! in October, insisted the company discontinue the school-based program as part of the deal.

Shares of ZapMe are trading below $1 on the Nasdaq Stock Market, well below year-ago levels, when the stock traded as high as $13.75 per share.

The ZapMe! network is a digital sandbox of about 10,000 Web sites that students can use. To go outside to the company's controlled network, students need parental permission.

ZapMe! started the giveaways in 1997. About 15,000 schools applied for the program and 50,000 free computers were handed out. The catch was, the computers would run ads and could be taken back at any time. As schools across the country learned last month, that possibility was closer than they imagined.

ZapMe! has offered to lease the computers to schools for $833 to $1,322 per month, depending on the size of the computer lab, which can range from five to 15 computers. Schools also have the option of buying the equipment for $6,000 to $13,000 per lab. ZapMe! has offered to help schools find funding to keep the equipment.

Mortenson said ZapMe! plans to move any returned equipment into businesses such as restaurants and auto body shops â€” industries the company is targeting in its new subscription-based business model. He predicted that about half of the schools will return the computers.

Andrew Hagelshaw, Executive Director of Oakland, Calif.-based Center for Commercial-Free Public Education, which harshly criticized ZapMe!, said the company was too controversial to succeed.

``It's the perfect example of what happens when you rely on companies to do these things,'' he said. ``ZapMe! promised something to schools and now, because of business conditions, they have to take it away.''